Actually, according to them everybody hates it:
Everyone Hates Ethanol
I can assure them that corn farmers, ethanol producers, and ethanol lobbyists don’t hate ethanol. 🙂 But they are correct that a coalition of strange bedfellows has united in opposition to our ethanol policy.
The article makes a lot of good points, but it is quite harsh:
These days, it’s routine for businesses to fail, get rescued by the government, and then continue to fail. But ethanol, which survives only because of its iron lung of subsidies and mandates, is a special case. Naturally, the industry is demanding even more government life support.
Corn ethanol producers — led by Wesley Clark, the retired general turned chairman of a new biofuels lobbying outfit called Growth Energy — want the Obama Administration to make their guaranteed market even larger. Recall that the 2007 energy bill requires refiners to mix 36 billion gallons into the gasoline supply by 2022. The quotas, which ratchet up each year, are arbitrary, but evidently no one in Congress wondered what might happen if the economy didn’t cooperate.
I laid out this scenario in A Vicious Circle. It goes like this.
1. First we create policies to subsidize, and when that doesn’t work well enough to mandate ethanol usage.
2. Overbuilding of capacity occurs, especially since the barriers to market entry are so low.
3. Margins fall, so producers find themselves in financial trouble.
4. Now we need more mandates, to keep the producers that were created in Step 1 from going bankrupt. Suddenly ethanol looks great, and given those low barriers to entry…
WSJ explains that a complicating factor is that fuel demand is down, so the amount of ethanol forecast to be produced is now more than the market is likely to absorb:
Americans are unlikely to use enough gas next year to absorb the 13 billion gallons of ethanol that Congress mandated, because current regulations limit the ethanol content in each gallon of gas at 10%. The industry is asking that this cap be lifted to 15% or even 20%. That way, more ethanol can be mixed with less gas, and producers won’t end up with a glut that the government does not require anyone to buy.
The amazing thing – and this is already starting to take place – is that oil refiners are potentially liable for any damages that result if higher blends damage engines:
The biggest losers in this scheme are U.S. oil refiners. Liability for any problems arising from ethanol blending rests with them, because Congress refused to grant legal immunity for selling a product that complies with the mandates that it ordered. The refiners are also set to pay stiff fines for not fulfilling Congress’s mandates for second-generation cellulosic ethanol. But the cellulosic ethanol makers themselves already concede that they won’t be able to churn out enough of the stuff — 100 million gallons next year, 250 million gallons in 2011 — to meet the targets that Congress wrote two years ago.
I have also said on numerous occasions that there is no way the cellulosic mandates will be met. Congress still hasn’t figured out that they can’t mandate technological breakthroughs. They keep assuming that if they pass laws, aspiring entrepreneurs will form companies and figure out the needed breakthroughs. If it was that simple, cancer and heart disease wouldn’t still be with us.
The article notes the irony that financially successful but politically unpopular business like oil companies are potentially liable for a product that has been politically forced upon them through companies that wouldn’t exist without generous subsidies and mandates. Their closing paragraph echos my previous essay on why this is a vicious circle that we are unlikely to break any time soon:
To recap: Congress and the ethanol lobby argue that if some outcome would be politically nice, it should be mandated (details to follow). Then a new round of market interventions is necessary to fix the economic harm resulting from the previous requirements, while creating more damage in the process. Ethanol is one of the most shameless energy rackets going, in a field with no shortage of competitors.
Once again, I note that it isn’t ethanol the fuel that I have a problem with. What I have always had a problem with is the system we have set up, which seems to have been done without giving enough consideration to potentially unintended consequences. If the government had spent more time listening to critics, instead of just dismissing them as shills trying to protect their interests, we may have been able to avoid some of this mess.
I have said before that I am a big fan of incentives, but not such a big fan of mandates. Incentives over time can – and should be rolled back as an industry starts to become established. If it can’t become established, going to a mandate means you are now trying to force something that is highly uneconomical. The problem with a mandate like this – which followed 30 years of subsidies that couldn’t get the industry to a self-sufficient state – is it forces you to purchase the fuel regardless of the cost. In the case of the subsidies, at least you have an idea about how much money is being funneled into the industry to keep it afloat. Mandates dictate that no matter how much it costs, we are going to blend 10.5 billion gallons of ethanol into the fuel supply in 2009.
The irony is that we could rely heavily on oil and coal for the ethanol production production, and yet the final product is ‘renewable’ and therefore heavily subsidized. That’s why I have frequently said that ethanol subsidies are indirect fossil fuel subsidies.
Note: I will be traveling for a couple of days, so probably no comments from me. I have set up another essay to automatically publish while I am away.
The interesting part of the article to me is who will get blamed for problems with ethanol blends. This has already happened in Florida with boat owners.
Maybe we should put a legal disclaimer on any pumpt that dispenses an ethanol blend.
I can see states or congress approving greater than 10% ethanol blends, then holding oil companies responsible for any damage.
The same thing is happening in the CO2 debate. They are trying to hold energy companies to a higher standard because they are politically unpopular. We hear that under the cap and trade plan there will be free allocations for regulated coal-fired generation, but not for refiners or oil producers. The feeling in congress is that oil companies can afford it, but electric ratepayers (or AEP) can’t.
Drink ethanol, and use PHEVs!
Imagine a fleet vehicle, using natural gas an batteries.
RR-
I know your thing is more oil than gas, but people are saying the Haynesville gas field is the largest in US history (!), and that new drilling techniques into shale promise a new era of abundance. Apparently, this shale gas is all over the place, globally.
What will this mean for oil?
In a sense, we are discovering the super-gaint gas fields now.
Drink ethanol, and use PHEVs!
More like: Drink ethanol, and urinate on PHEVs!
Seems there is a troubling rumor in the blogosphere, Benny: Volt Battery = Epic Fail?: In fact, we’ve heard that the battery is failing to meet ANY of its targets: range, recharge time, battery life expectancy, cold weather performance, cost, nada. Whoops!
A commenter describes the Volt this way: an electric vehicle with all advantages and handicaps of an electric vehicle, which is pulling around and ICE and all if its trappings and disadvantages.
GM has not one but two highly unsuccessful hybrid programs out on the street today. I can admire unsold copies of these efforts at the Chevy dealer down the road.
Toyota and Ford both have hybrids on the road. Toyota’s is very successful; Ford’s somewhat less so (but there’s a waiting list for their vehicle and they do build 2500/month). Both have looked down this path and said, “no, thanks.”
Imagine that… the two leaders in this race both agree that the EREV isn’t the way to go at this time.
Another commenter points to a troubling history at GM: GM has been grasping at moon-shots for ages now, and most of them have been an embarrassment of underdevelopment.
This goes as far back as the copper-cooled Chevy disaster of 1923 ( http://auto.howstuffworks.com/1923-chevrolet-series-m-copper-cooled.htm ), on to the almost-done Corvair, oil burning Vega engines, craptastic diesel V-8, troublesome Cadillac V-4-6-8, Fiero, oil burning original Saturns, horrific Cadillac HT engine series, millions of prematurely failing V-6 engine intake manifold gaskets …. the list is endless. All too often, GM hypes, promises and launches products without really doing their homework first. Buying the first few years production of almost any new GM technology is a big gamble.
You feel like gambling with $40K odd, Benny?
Optimist-
I have long conceded that GM is not a viable concern, and that they are not leaders in engineering.
But advancements are being made fast and furious in battery technology. Take a gander at an excellent blog, Ghawar Guzzler, and read the last couple months of posts.
GM-Volt may pot out, despite the efforts of some good engineers. We are in a terrible economy. Rotten.
And it may be the regular hybrids improve so much they delay the commercially successful introduction of PHEVs. People say the second-gen Prius and Ford Fusion are terrific cars. 50 mpg is the new 20 mpg.
My guess is that PHEVs need $6 a gallon to take off in USA. They may work in Japan, China, Europe. They may even be mandated at some point.
As for cars, I drive a 1986 Isuzu Trooper that never seems to tire. If I came across 40k I would buy more land in Thailand. I can’t imagine buying a new car. My frugal gene would give me a stroke.
If you want to urinate on PHEVs, wait until the GM-Volt comes out, and then do so. However, I would not advise it if the owner is sitting inside! Especially, if he or you has been drinking ethanol.
“this is a vicious circle that we are unlikely to break any time soon”
The Political Class may not want to break the circle — but the circle will get broken anyway.
The Obama administration is busy knocking holes in the bottom of the boat. They are destroying the economy at home, and projecting weakness & incompetence abroad. There will be consequences, and even San Fran Nan will find soon enough that she cannot mandate the laws of physics out of existence. Nor can the Obama administration spend vastly more than it takes in indefinitely.
Real change is coming, whether you are hoping for it or not. Not necessarily change for the better, unfortunately. It is a real pity. Lots of ordinary peoples' lives are going to be disrupted & ruined.
Someone should point out the irony to Iowa’s senator who has lobbied so hard for ethanol subsidies.
Grassley Accuses AIG of Sucking ‘Tit’ of Taxpayer
In other news, Stalin says Hitler is not a good person.
Why do you keep condemming ethanol subsides? Look at the subsides the oil companies receive in tax credits, off-shore drilling, blender credits and the list goes on yet one company had profits of over 46 billion dollars last year. Add to that the cost of the military protection of the oil fields and tanker ships. What cost does one put on the lives of the solders killed or maimed to protest oil investments?
Ethanol is a completely renewable product growen and produced in this country with the profits going to the investers in this country.
I do not see any tanks or troops protecting our corn fields or ethanol production facilities!
Look at the subsides the oil companies receive in tax credits, off-shore drilling, blender credits and the list goes on yet one company had profits of over 46 billion dollars last year.
Try this:
Oil get’s big subsidies, not ethanol. Wrong by 54 times!
“Ethanol Today,” (8/’05) states “Five years ago, a US General Accounting Office report showed that ethanol had received $11.6 billion in tax incentives since 1968, while the oil industry had received over $150 billion in tax benefit over the same period.
true. But the oil industry produced 1068 times more energy so the subsidy rate per unit energy was 54 times higher for ethanol. That’s like ethanol gets 54¢ and oil gets 1¢. Now if we had oil subsidies, and we do, and ADM is making more profit than …
Ethanol is a completely renewable product growen
Complete rubbish. The renewable component of ethanol is very small. It is enable primarily by fossil fuel sources.
What cost does one put on the lives of the solders killed or maimed to protest oil investments?
Ask the corn farmer who continues to use fossil fuels to grow corn. Is the price not too high for him?
I do not see any tanks or troops protecting our corn fields or ethanol production facilities!
Yet here I was under the impression that these guys use oil to fuel the trucks and tractors that make their farming operation possible. Good thing that isn’t true, or they would be benefiting from any oil subsidies.
RR
Wrong. Ethanol doesn’t use that much fuel, and the energy gain is positive, as opposed to gasoline, which has a ratio below 1.
Here’s an excerpt from a peer-reviewed study published in January in the Yale Journal of Industrial Ecology:
“Direct-effect GHG emissions were estimated to be equivalent to a 48% to 59% reduction compared to gasoline, a twofold to threefold greater reduction than reported in previous studies.
Ethanol-to-petroleum output/input ratios ranged from 10:1 to 13:1 but could be increased to 19:1 if farmers adopted high-yield progressive crop and soil management practices.
An advanced closed-loop biorefinery with anaerobic digestion reduced GHG emissions by 67% and increased the net energy ratio to 2.2, from 1.5 to 1.8 for the most common systems.”
Congress can’t repeal the laws of physics and chemistry. What’s needed is for the facts about the poor energy return of ethanol to become mainstream so that pols can no longer ignore them. It’s not like it’s that hard to grasp the basics of why ethanol is so costly in energy terms to produce. Throw in the environmental side-effects. Re. cellulosic, I think a similar very simple case could be made for why it would make far more sense to extract energy from such material via some sort of combined-cycle gassification that produced electricity instead.
Wrong. Ethanol doesn’t use that much fuel, and the energy gain is positive, as opposed to gasoline, which has a ratio below 1.
Number one, around 90% of ethanol’s BTUs have a fossil-fuel basis. That per the USDA’s numbers. Second, you are confusing the difference between an efficiency and an energy return:
Energy Balance For Ethanol Better Than For Gasoline?
An advanced closed-loop biorefinery with anaerobic digestion reduced GHG emissions by 67% and increased the net energy ratio to 2.2, from 1.5 to 1.8 for the most common systems.”
That was, in fact, the basis of the E3 Biofuels plant that went bankrupt before they could even demonstrate the concept.
RR
“But the oil industry produced 1068 times more energy so the subsidy rate per unit energy was 54 times higher for ethanol.+
More to the point — the "Subsidy" paid to oil producers is really simply the return of part of the taxes paid by oil producers. Oil producers are very heavy net tax payers.
In stark contrast, the subsidies to ethanol producers are true subsidies, far outweighing any taxes they pay.
Ethanol is just another way that the Political Class pump money out of the pockets of ordinary people and into the pockets of the rich & well-connected. Let's hope for change.